On structural sources of the 1994 Turkish crisis: a CGE modelling analysis

Abstract

This paper investigates the impact of the Turkish public sector imbalances on the evolution of the economic crisis during 1990-93. A computable general equilibrium model is used. The theoretical basis of the model rests upon the strucutralist/Keynesian macro foundations. Its distinguishing features entail accommodation of oligopolistic market-up pricing rules in the industrial sectors, and endogenous solution of capacity utilisation and unemployment levels through Keynesian mechanisms of effective final demand. The results of the model underscore the importance of intra-class relations of income distribution and conflict in the evolution of price movements in the Turkish economy. It is further argued that the sources of the crisis lie in the administrative interventions of the state towards protection of the capitalist and rural incomes, which would otherwise be squeezed out in favour of wage-labour in the early 1990s.